A minimum wage increase that could put some restaurants out of business

“Obamacare” worries small business employers. The added overhead cost for offering health insurance imposes a huge burden on many small businesses. Now restaurants have another potential cost increase – wages for restaurant servers at full minimum wage for work not related to serving. Currently, the tip credit of $5.12 per hour is allowed if 80% of a server’s time is spent on tippable serving-related tasks. A labor loophole allows waitstaff to only be paid $ 2.13/hr, as long as the tips received cover the $5.12 tip credit. Non-tippable duties typically performed by waitstaff can include cleaning and food preparation. With minimum wage at $7.25 an hour, the minimum wage increase amounts to $5.12/hr for non-serving work, a cost picked up by employers (and even more once you factor in payroll taxes and Social Security). Whereas before the $5.12/hr was generally covered by customer tips, employers will now have to bear this financial burden.

These proposed changes stem from an increase in labor complaints by emploeyes in the food service industry. Two Rochester waitresses from an Appleby’s franchisor filed a federal lawsuit against their former employer following a similar suit against another Appleby’s franchisor in Missouri.

The issue here is difficult to balance. Lower wage employees can be exploited, and the law needs to protect underrepresented classes from economic abuse. However, the food industry is renowned for being a difficult business with high costs and modest profits. With the economy already taking its toll on the food industry, the impact of one more major cost increase could close the doors of many entrepreneurs just making ends meet until the economy rebounds. Where are the equities in this situation? It will be interesting to see how it all plays out.